Brookdale Senior Living Inc. (BKD) May 20, 2026 Conference Transcript

Thank you for joining us today. We're pleased to host Nick Stengel, the Chief Executive Officer, and Don Cusso, Chief Financial Officer from Brookdale Senior Living.

I'm Ben Hendricks, Healthcare Services and Managed Care Analyst here at RBC. Thank you guys very much for joining us. I think Nick has a couple of opening comments, and then we'll get right into Q&A.

Yeah, excellent. Thank you, Ben. Thanks for having us first and foremost. Just a couple of things, and it really ties into our investor day that we did back in January. We talked about the different eras, the different chapters of Brookdale, and I want to reiterate that we are entering kind of the next chapter, the next phase of the Brookdale story, really informed, defined by the past. But as we look forward to the opportunity to grow, to take a more offensive posture, now that we have a lot of the burdens of the past behind us, namely COVID, namely some of our cash flow issues, being positive cash flow for the first time in a long time last year and projecting to be the same in an even more meaningful way this year, new leases. And truly, what it is really about is about a new team with the right organizational structure and this idea that we're an operating company first and foremost. So I'm sure many of the questions will take us down that path, but excited to open up the new chapter of Brookdale as we look towards the future with an eye towards the past as well.

Great. Thanks for that. And I want to just jump in with just a little bit of a follow-up from some of the trends in the quarter. You know, you had noted high single-digit in-place rent increases on January 1 and noted more highly-occupied communities receiving low double-digit increases while lower-occupied communities receiving a mid-single-digit. Can you walk us through the decision framework behind your tiered approach? How are you thinking about the tradeoffs between the rate and the move-out risk at the community level?

Yeah, no, great question, Ben, and as you mentioned, and I'll repeat it, in aggregate, so across all our communities, all our units, the aggregate kind of headline number is that high single-digit in-place rate increase that we put in effect on January 1st, much as our peers do within kind of an annual structure, but as you did highlight and we have talked about, we do bifurcate that quite a bit, so highly occupied communities, and in fact, it's even more than just communities, really, it's the product type, So if you're highly occupied memory care versus AL versus IL, the decision-making is very different. And in fact, when it's highly occupied, and we use 90% just as a nominal benchmark of what highly versus not highly occupied is, we will actually, and we did actually push a low double-digit rate increase. And we do that because obviously the occupancy implies that we have a great product, we're in a great market, the customers, our residents value that product, and we have the pricing power to do that. Conversely, we do have communities that are not highly occupied, so anything below 90%, maybe even all the way down to 70%, 80%, where we don't have that pricing power for whatever reason, whether it's the market, whether it's the own product or service we're providing. We are going to do something different because we're really trying to drive our overall occupancy, and the real headline number really needs to be REVPAR. So as we think about how we do this, more highly occupied, to get to our 8% to 9% REVPAR guidance for the year, we have to drive mostly through rate since occupancy is really not available. Conversely, on that lower side, we obviously drive it via occupancy as opposed to rate. So it really is kind of a two-speed decision-making where premium pricing and discount pricing are working concurrently across our 500-plus community portfolio.

Yeah, maybe we could stay on that track a little bit and talk about, you know, the REV4 piece on the lower end. I know the overall same-store REV4 is up 3.4% in the quarter. And that was weighed a little bit by some of the annualization of concessions you'd taken in 2Q and 3Q of last year. Can you help us think about the trajectory of that same-store REVPOR through the rest of the year as those concessions roll off and what kind of a normalized REVPOR growth rate could look like for the portfolio as it stands?

Yeah, if you look at our REVPOR, our same-store REVPOR increase here over year, the 3.4 percent. But really, if you look at the sequential fourth quarter of last year to first quarter of this year, our rev poor on a same-star basis increased 6.3%. And that's really where you see that flow through of that high single-digit rate increase that we talked about. We typically see about two-thirds of that rate increase flow through to our rev poor. And so that's really where you're going to see that increase. On a consolidated basis, 4.5% of a rev poor increase. So that was lifted a little bit by the disposition accretion that we've been talking about. You know, typically our rev poor will trend down every quarter. We see our high in-place rate increase in the first quarter, and then it'll typically step down with acuity and then discounting that, you know, strategic discounting that we'll do throughout the year. This year it's a little bit different where we expect that rev poor to step down in the second quarter, But then we expect it to hold firm in the third and fourth quarter because we are going to get that accretion impact that's going to generally offset that normal seasonal step down that we see. You know, as we think about our rev poor, you know, going out, you know, just as Nick said, we're very much focused on rev par. So it's this two speed approach that we'll always look at. Number one, what is our occupancy and balancing rate and occupancy? And then always looking at making sure that we're going to get a rev poor and export spread. As we're thinking about, you know, the out years on our red pour.

Great. And before we go into the cost side, I wanted to talk a little bit about the higher occupied units, 15 percent, the consolidated portfolio, 95 percent occupancy. And that you've noted that you're seeing strong pricing power there. So how should we think about the rate ceiling for those assets? And, you know, and then where is the risk of, you know, of risking move outs at that point?

Yeah, great question. And we often get this question from investors. You know, once the industry goes to 95% occupancy, once specific markets hit 95%, 96%, 97% occupancy, what does that mean? And again, I firmly believe that is where our industry is going. You know, Brookdale will be a part of that, but the entire senior living industry, based on the supply-demand dynamics, the undeniable kind of setup that we're in over the next several years, what does that look like? Well, I kind of already hinted we have communities that are 95% and 100% occupied on wait lists. So what does that mean? That means we're able to drive a low double-digit rate increase without any real impact on move-outs, without any real impact on our wait list. And I think a lot of our peers, who also publicly report whether it's a REIT or otherwise, have kind of shown that same pricing power exists as that occurs. And again, it's very much just as much about the market filling up as it is individual communities because all those communities will draft. So that's, I think, the path that we're on, again, based on the low supply and the high demand.

Great. I'm going to look ahead for, you know, kind of 2Q in the second half, and how are you thinking about the progression? You provided some great notes on the slide 12 of your investor deck. April, and we know that April consolidated occupancy was up 30 basis points sequentially, well above the historical 10 to 20 basis points that you typically see in that progression. And, you know, what you describe as a key selling season, May through September, what specific operational changes have given you confidence that, you know, the momentum you're seeing is sustainable? And what are the key variables that could cause you to miss or beat 2H occupancy ramp?

Yeah, so I talked about this a bit during our most recent earnings call through Q4 and Q1, and really the last year, and a bit of it predates me. We've gone through a lot of changes. Massive organizational changes, how we're structured. Part of it being me stepping in as the new CEO, the third one in just under a year. New COO, changing our ops sales clinical structure. So a lot of changes, which, again, set us up for success. They are almost prerequisites to really grabbing on this to the supply demand dynamic. So as we look forward to the rest of the year, those changes are going to be further and further in our rearview mirror. And we're more or less stabilized as far as the organizational structure defining who we are as a company. Concurrently, we have disposed, gotten out of leases, management agreements, our own handful of owned assets of nearly 100, actually over 100 in the last year as well, which is very disruptive. I mean, it's constantly changing who is who, who reports to who. And as we have articulated pretty clearly, that story is pretty much done. We have a handful still we have to complete through the remainder of this quarter, maybe one or two stragglers for the remainder of the year. But the massive step changes that have occurred as far as who we are as a company, the portfolio we have, the people we have, and how they're organized, those have more or less stabilized really in the last couple months right in the middle tail end of Q1. So as we look towards the future and what that looks like, it's this realization that we're a stabilized company for the first time in many, many years. We have a lease portfolio, lease segment that is generating free cash flow that is accreted to the business, so we don't have to worry about that drag. We have the structure, we have the team. So again, feeling very confident on what the remainder of the year will look like. You mentioned May to September selling season. That is correct, and that's why we're excited. Really, it's more June, July is really where it ramps up, but we're looking for a very strong May, just as we had a very strong April. So we're kind of setting up for what this will look like for the rest of the year, which kind of reiterates our guidance and why we feel confident in our ability to strike our EBITDA and our overall REF PAR guidance for the year.

It seems to set the stage well for your second half ramp that you're projecting in 3Q and 4Q. Can you kind of talk about how you're thinking about that or how we should think about that, you know, from a, you know, driven more by occupancy or G&A and kind of the mix there that kind of drives that EBITDA acceleration?

Yeah, I think the second half ramp in our EBITDA is really driven by the same community underlying performance. We have occupancy, and then we expect to continue to see that REVPOR and XPOR spread as we grow our occupancy. So maybe three primary tailwinds that I would talk about is, like Nick just said, third quarter is typically when we see our occupancy increase seasonally. We've driven a high single-digit rate increase price, so we expect to hold our price. And then this year, we really have more communities above that 80% fixed cost threshold. And so that red poor export spread gets larger as you drive your rate and then you control your costs. And so we'd expect that flow through. Now, in the back half of the year, we also are going to get a little bit of an accretion impact on adjusted EBITDA, just typically from the dispositions that we're doing kind of in the front half of the year. From a G&A perspective, we've exited the managed contract business, and so we'll have a million dollars of management fees from second quarter to fourth quarter in total. And so the step down in our management fees in the first half is really where the G&A savings are offsetting that step down in that revenue.

And I'll also add in, I believe it's either in slide 18 or 19 of our investor deck, and it jumps around from quarter to quarter. We have a slide that we've included for several quarters now that shows the EBITDA that is generated per unit in the different occupancy bands. And it's a pretty striking number. And really, that is what informs kind of our overall kind of projection, our earnings guidance for this year, our multi-year projection. And it's pretty striking. So I would ask that you take a look at that because that really drives the entire conversation. I'm going to do this from memory, which is always a little dangerous, but I believe our lowest occupancy band, the EBITDA per unit, for those units is $4,800 per unit annualized. You take a similar unit, but now it's in a highly occupied community, call it 90% plus, and it's now nearly $20,000. So a 4x increase in EBITDA per unit with really, obviously, that's the fixed cost operational gearing, operational leverage that exists. So the idea is, kind of the projection is, over the year, this year, and even more so in the future years, as our occupancy increases and we have more and more communities, more and more units shifting up that slide from the lower occupancy to the higher occupancy, the EBITDA accretion just only ramps up even more. So that's kind of the real fundamental underpinnings of our profit guidance.

Yeah, and maybe just even to put a finer point on exactly what Nick said is if you even look at the sequential fourth quarter of last year to first quarter of this year, that EBITDA growth, particularly in the higher bands, you can see the significant increase on a per-unit basis going, and that's a lot of just the rate increase that we put in place and just how that flows through. It exemplifies.

Yeah, the pricing power you have at those higher-occupied units.

Great. And then just to close the loop on that, the cost differential between those bands, is it material or can we attribute most of that increase that you just discussed to pricing?

I would say it's the flow through of the higher price because you have natural inflation, you have natural resets on every one of those bands. And so you'll get most of that is the flow through of the pricing. Yeah.

So, I mean, obviously, there's some variable cost. Food comes to mind immediately, but the reality is there's quite a bit of fixed costs associated with running any community, whether you're sitting with one resident or 200 residents. Obviously, there's some variability, and that's really where that is driving. So, the expense base is more or less mostly fixed as you go up those, and yet the revenue increases.

On a related note, let's switch over to your portfolio optimization and progress you've made there. You've exited over 100 communities since the start of 2025. You've expected to close the remaining 19 owned dispositions, mostly in 2Q for total. 2026 proceeds of approximately 200 million is what you signaled. And those transactions are complete. You said you do not foresee any significant further portfolio changes. So how should we think about the steady state portfolio in terms of size to own versus least mix, geographic concentration, and how does that compare to the kind of optimal portfolio that you've talked about in going back to your investor day?

Yeah, all the numbers you said are spot on. It's always dangerous in businesses, words like never and always, and yet I'll go as close as I can. And we are, in effect, at the trough of the Brookdale story when it comes to our portfolio. So we peaked, and I think this goes back to 2014, well before me, obviously, where we are, I think, just shy of 1,200 communities. It was just right after the Emeritus acquisition. Really, every year since then, so for the last 12 years, we've just shrunk our portfolio ever so slightly, year to year to year. And it's come in all three forms. The management agreements have gone down. Our number of lease communities have definitely gone down, especially in our most recent lease reset. And even our own, even though that's remained relatively stable, believe it or not, which is actually fascinating, the overall kind of structure has gone down. And we're projecting, and the idea is as soon as we dispose of the remaining 19, we are at the trough, and that is our go-forward portfolio. So, again, I use the words right team, right organizational structure, right portfolio, and that is exactly right. And it's not just the numbers. It's not that the 517 consolidated number that we've been describing. It's where they are. It's in the markets we want to be in. It's in the states we want to be in. In fact, if anything, we are going to take a little bit more of an offensive structure, and it might go up to 518 or 519 or 525, 21. So if anything, we're actually looking to do targeted acquisitions for the first time in a long time. Part of that is some of the leases that we have have buyout options. We will contemplate those very seriously as the opportunity arises. And we are actively looking at small, individual, very targeted acquisitions in markets that we're already in, but we want to be in it even more meaningfully. We are in, call it, 125 markets today, zero desire to be in 126. 41 states today, zero desire to be in 42 states. We are where we are, where we want to be. It's just a question of how do we fill in and really create critical mass density in markets that we're already in.

One question we've gotten recently, maybe just to follow on to that, how would you frame up your core markets? We think about what does a book deal market look like versus like shop portfolios and mostly in the rest of the industry? How would you characterize the advantage of your marketing positioning?

Yeah, so we're in basically any market, metro market in the U.S., except for maybe midtown New York City where we are right now. But in effect, name a city in the U.S., top 80, 90 cities, and we have a presence, and typically we have a meaningful presence. And by meaningful, two, three, four, 20 communities in the case of the Dallas-Fort Worth metro market area. And what that means is we can cover the entire geography of the city, because typically when someone is shopping for senior living, a family member, usually it is truly hyperlocal. It's not just, I want my loved one to be in Dallas. It is, I want them to be in this specific part. I want them to be in Frisco, McKinney, Plano, a specific area, and we have that option. Whether they walk into a Plano community, we have a Frisco option for them. And, oh, by the way, the next part of it is the product type. So memory care, AL, IL, obviously a very important part of the decision. There's also pricing points. So the reality is we have many different choices and many different options for someone who's looking for the senior living product, the senior living service within a market that we can cross-sell within a market. That's one of our strengths and something we're really leaning in on. In fact, one of the adages I've started saying is we're not going to win community by community. We're going to win market by market.

You're now approximately three-quarters owned, 24% leased, about thereabouts. Our lease portfolio has historically been a drag on cash flow, but you've noted that it's now just a free cash flow positive and performing well on an NOI basis. With the Ventus lease dispositions now in the rearview mirror, your cash lease payments are down about $12 million year over year. How should we think about the lease portfolio's contribution to EBITDA and free cash flow as we move forward?

We're extremely pleased with the lease portfolio. We've reduced our portfolio by about 60 communities, about just under 40 percent of our units. And I think, really, I would point to our supplement. We do a separate page for our lease performance. And you can really see in the first quarter of this year that as we disposed of, Most of those communities got disposed in the third and fourth quarter of last year. Our margin is up over 33%. We have our rev poor, our rev par that have increased. The portfolio is cash flow, our lease portfolio is cash flow positive. We have aligned our interest as we renegotiated leases. We aligned our interest with our REIT partners, and so what they will do is they'll provide CapEx dollar funding, and so it really helps us from an adjusted free cash flow perspective. And as you pointed out, that portfolio is adjusted free cash flow positive and really contributing to the overall value of the company now, as opposed to in the past it wasn't. I think maybe the last point that I'd make on our lease portfolio is that as we renegotiated those leases, really our escalator, it's effectively a fixed 3% escalator across our portfolio. And so as we think about our cost structure going forward, to have that escalator at something as low as a 3% fixed escalator in general is something we're really pleased with.

And I mentioned earlier, some of our leases have purchase options kind of built into the structure. So again, very excited. First time in a very long time. We love our lease portfolio. It is very accretive and is a meaningful part of our business. It's not the minority. We're still the third largest senior living owner of senior living real estate, but it is a big part of our business as well.

I wanted to transition over to CapEx. You know, there's $175, $195 million in CapEx in your guidance for this year. You know, you highlighted in your deck some really nice ROI examples, you know, of how you're deploying that. And then, you know, there's a large pipeline of communities, you know, that have meeting your return hurdle for comprehensive refresh. And how do you prioritize between the routine maintenance CapEx and these higher return discretionary investments?

Yeah. So in the past, and even last year, I think we spent the net of $171 million of CapEx. Our CapEx methodology was more an allocation methodology. In other words, if you were a big community, you'd get half a million. If you were medium-sized, you'd get $200,000. If you were small, you'd get $100,000. And it sort of didn't align with a real return in the value of spending that capex. It was just, you know what, it made sense. And typically what a community would do, they would take their small allocation, and they might have enough money to replace a bunch of dining room chairs and dining room tables. And that community might very well have been a 95%-plus occupied community. In other words, the story I'm painting is the incremental NOI. There's probably not an incremental move in generated or an incremental move out that was saved because of that CapEx spend. So we're taking a very different approach, and part of it is hiring our senior vice president of strategic operations, a gentleman named Clark Jones, who is now leading this, where we have very comprehensive, very focused capital deployment programs, and that slide 19, which is what you were just referencing, I think shows three of those in very recent history and the success we've had, whereby we're taking our funds and putting them in projects where there's a real return, where we generate a pro forma, we measure that pro forma, and we can get a return. And usually that return is in the form of higher occupancy, whether it's move-ins or saving move-outs, where we can fill in occupied units very rapidly because of comprehensive-type projects.

Another related question that we've been getting lately is when people kind of look at your portfolio and comparing it to shop portfolios with REITs, is they're looking at your, you know, your implied gross CapEx per unit, which I think right now is around 4,400, and just to be sure, that includes your high ROI projects, but is before lessor reimbursement. Is that correct?

That's correct.

And so as we think about that going forward, is there going to be a period where maybe some of the higher ROI investments start to get filled and level off and we plan out at a lower level of, I guess, of maintenance? Or would that higher ROI investment continue indefinitely?

Yes, I mean, our list of projects is prioritized based on the return we can achieve. Obviously, as we dig deeper and deeper and deeper, that return starts getting closer to our hurdle rate, at which point we will deploy capital in a different way. So the $175 to $195 million EBIT or CapEx projection for this year holds true for this year. I have to believe it will be maybe roughly the same next year, but at some point that will likely start dialing down. Then we'll start hitting a more typical capital deployment cycle rotation, just like hotels do, just like big, you know, fixed asset intensive companies do. But I do see that potentially or definitely going down as the returns start getting closer to our hurdles.

I wanted to move over to, you know, the cash flow, seasonal outflow of $12 million in 1Q, and that included, you know, your annual incentive compensation payments. You know, as occupancy continues to build through the year, which we've discussed, and, you know, your dispositions generate that $200 million of expected proceeds, how should we think about the free cash generation in the second half and your ability to reduce leverage from the current, I believe you're a little under nine times right now, and you're, you know, to get to that target of 6x or lower by 2028?

Yeah, absolutely. The leverage target that we talked about is a lot is driven by the adjusted EBITDA growth. You can look at the progress that we've made. We have a slide in our investor presentation. It just shows the progress that we've made just from our adjusted EBITDA growth and kind of growing out of our leverage. So at 8.8 times, the roadmap to get to that below six times is a significant amount of that is through adjusted EBITDA growth. We've talked about mid-teens growth over the next several years, and so that is, you know, the largest portion of that. Now, the fact that we have the dispositions, we talked about $200 million in proceeds, that certainly will come into play in our leverage calculation, but certainly not the driver of that decrease in our leverage.

I think that brings us to time. Thank you very much for your time today.

Excellent. Thank you, Ben.

Great. Thank you, Ben.